Cisco Systems Inc. has joined Hewlett-Packard Enterprise Corp. in putting aside billions of dollars to send a big signal to its corporate customers: Don’t worry about your bills, just please stick around.
Cisco CSCO, +0.04% made $2.5 billion available through its financing arm Tuesday to keep customers buying its tech products during the COVID-19 pandemic, with payment reprieves until next year. That topped HP Enterprise Co.’s HPE, -1.61% $2 billion plan to help customers with their financial challenges.
Both tech giants are able to do this because they have large financing units. Both are offering 90-day payment holidays and no- or low-money down on tech purchases and upgrades.
Cisco and HPE are the first tech giants to offer customers payment reprieves as the coronavirus pandemic continues to wreak havoc on the global economy, but they likely won’t be the last.
“I expect everyone is going to do this,” said Rob Enderle, principal analyst at the Enderle Group. “Otherwise everything is going to shut down. People still need tech, companies are just being very conservative with their cash.”
Among other big tech rivals that might consider a similar move: IBM Corp. IBM, -0.28% , which also has a large financing arm, and Dell Technologies Inc. DELL, -2.64%. Dell, though, still has a lot of debt after its big merger with EMC and its return to the public markets. But other enterprise tech players may feel pressure from customers to offer at least a 90-day financing reprieve, in response to the moves by HPE and Cisco.
Cisco’s new plan, called the Business Resiliency Program, includes a payment holiday for all of its customers for 90 days, and allows them to defer 95% of the cost of new products until 2021. After the 90 days — through the end of 2020 — 1% of the total order is payable, per month. Then in January 2021, customers will make a monthly payment based on the total financed amount and the remaining term of the contract.
Kristine Snow, senior vice president and president of Cisco Capital, said Monday that the program was a combination of Cisco’s observations on the global economy and its customers — most of which are seeing new tech demands because of employees working from home but are also extremely cautious about their capital spending as they hunker down for a recession.
According to a quick survey of chief information officers earlier this month by Instinet analysts, nearly half of the 50 respondents expect the coronavirus to drive an annual decline in IT spending. The top three product areas CIOs said they would typically cut if macroeconomic conditions worsen are PCs, artificial intelligence and servers, with 68% of respondents citing PCs and 48% citing AI and servers. Security and public cloud were among the lowest on the list.
PC sales, as seen in the first-quarter data from both IDC and Gartner, saw big declines, as the global supply chain was disrupted by the coronavirus-related factory shutdowns in China and elsewhere.
Enderle added that the move was a “reasonably good gamble” by the tech giants to help their customers, some of which may have manufacturing lines in China or elsewhere for a wide variety of products.
“With manufacturing opening up overseas, you want to push product through the factory before those lines get used up by something else,” he said, and the moves by Cisco and HPE will help companies use their cash to keep manufacturing going.
Cisco and HPE are also both still in a battle with public cloud players, such as Amazon.com Inc.’s AMZN, +6.17% AWS, Microsoft Corp.’s MSFT, +0.22% Azure and Alphabet Inc.’s GOOG, +0.50% GOOGL, +0.31% Google Cloud, all of which are seeing recent surges in usage and demand. In addition, as more retailers and other small businesses move their sales online, they are using these public cloud services too. With easier credit for customers during the global pandemic, Cisco and HPE hope to make it easier for companies to acquire more tech gear with a wider range of computing needs, including for private clouds.
Officials at Cisco and HPE noted they had similarly worked with customers on financing during the 2008-’09 financial crisis.
Snow said the current environment is quite different from that recession.
“It is different because the liquidity is there in the marketplace,” she said. “We just don’t know what is around the corner.”